March Consumer Credit Plunges

The chances this recession/depression is over are close to zero. Reuters is reporting a massive plunge in consumer borrowing showing that both borrowers and lenders are starting to realise how broke they are. As they say-- when in a hole-Stop Digging!

"March consumer credit fell at an annual rate of 5.2% to a total of $2.55 trillion. This was the biggest percentage drop since December 1990.

February's decrease was revised to $8.1 billion from an originally reported $7.5 billion drop.

Analysts polled by Reuters were expecting a $3.5 billion drop in consumer borrowing for March."

Mish as usual has a good take on this along with this chart.



Notice that until the 1980's and throughout American history, consumer credit played a small role in our economy, with most houshold purchases funded by savings and income and most credit used for business investment. This worked fine, but the Fed and it's statist pals thought we could do better and our "consumer economy was born."

We are starting to see the results. Unlike, the bulk of business investment in a free economy-- most consumer purchases do not lead to higher levels of earnings or productivity to pay off the loans. They can, for a time result in higher asset prices, providing there is more and more credit available to push up prices. But at some point, the last dollars of true savings are spent and the last solvent creditors have borrowed and the cycle goes into reverse.



Well, at least the Feds can borrow and spend for us right??? Well, I serously doubt it. Sadly, American consumers now will not only have to pay for their own mistakes but for the insane policies of our government as well.

The Wise Chinese

As the U.S. and the west's bubble economy implodes, exposing the thin air at it's core, the political players and crony capitalists have grasped at the hope that they can pull the world's last solvent countries into one last "collective" effort to save themselves.They need a bigger rug to sweep the dirt under. Luckily, it looks like China, which was already burned on U.S. investments will not be in on this. This is wise.

"Asked whether China might pursue economic policies aimed at saving the world, Mr. Lou said that the country’s leaders had a narrower focus. “China can only save herself because the scale of China is still rather small,” he said, adding that while China has more people than any other country, economic output is still low enough that the Chinese economy is not yet big enough to have a big effect on the global economy.

“If China can do a good job domestically, that is the best thing it can do for the world,” he said.

Mr. Lou’s comments represent the clearest statement yet that as global financial markets have plunged this year and economies have slowed, the attention of China’s leaders is turning inward."

The Chinese government seems to have a grip on how small it's economy still is and how much it needs to retain it's currency reserves and savings to boost it's own productivity.

They also are rightly afraid of the ever changing legal and financial environment in America with it's ever changing soup of programs and bailouts sold as way to "instill confidence in the markets."

"Mr. Lou said that the sheer pace of new initiatives and new rules issued by Western regulatory agencies was disconcerting and made it even harder for him to choose worthwhile investments. “If it is changing every week, how can you expect me to have confidence?” he asked."

That leaves the government ever more reliant on the printing press to fund it's schemes.